A jumbo loan is one where the loan amount is greater than the prevailing conforming loan limit. For most of the country, Oregon included, the conforming loan limit is $484,350. In other areas where the prevailing home values are much higher than in other parts of the country, the conforming loan limit can be as high as $726,525. Any loan amount above either of these limits is classified as a jumbo mortgage. Because the median home values across the country are somewhere around $227,000, most loans issued today are conventional loans. Most loans issued today are conforming or government loans like FHA.
Conforming loans have multiple choices and can be either fixed or adjustable. Fixed rate terms can range from 10 to 30 years in five-year increments. Adjustable rate loans can adjust every month, six or twelve months. The most common type of adjustable rate loan today is the hybrid mortgage. A hybrid mortgage gets its name because it acts like a fixed rate loan at the beginning of the loan term. This initial term can be anywhere from three to ten years before turning into an adjustable loan that can change every six or twelve months.
For jumbo mortgages, there will be fewer choices but still fall into the fixed and adjustable categories. Interest rates for jumbo loans are typically a bit higher than a conforming counterpart. Comparing a 30 year fixed conforming rate with a fixed jumbo rate might see a difference of 0.25 to 1 percent. A lot of this depending on the down payment and credit profile of the borrower.
Adjustable rate mortgages have lower initial rates compared to a fixed, that’s one of the attractive features of an adjustable rate loan. Adjustable rate mortgages have an initial “teaser” rate that is lower than its fully indexed rate. A fully indexed rate is calculated by adding the value of the index with a margin.
For example, a 1-year Constant Maturity Treasury is a common index for many adjustable rate mortgages. A typical margin is 2.25 percent. If the loan were to adjust, the lender would research the 1-year CMT and add the index. This fully indexed rate is the rate in which the payments are based upon until the next adjustment. If the 1-year CMT was 2.5 percent and the margin 2.25, the new rate would then be 4.75 percent. When taking out a new adjustable rate loan, the teaser rate might be something closer to 3.50 percent.
With a jumbo loan, many times the borrower is looking for the lowest monthly payment. This is first accomplished by selecting the longest available loan term, or 30 years. The next choice is to look at adjustable rate loan options. The borrower might select a 5/1 adjustable rate program. This is a lower-rate ARM compared to a fixed, but the initial term is fixed for five years before turning into a loan that can adjust at regular intervals. The 5/1 jumbo ARM is a popular choice for higher end borrowers.
Most jumbo loans for both purchase and refinance transactions require a fully documented loan file. That means two years of tax returns, paycheck stubs, bank statements and more. This is quite the opposite when there was a multitude of “No Document” type loans where very little was documented. However, there are jumbo loans today that verify income in a different manner than paycheck stubs or W2s.
These are most often referred to as “bank statement” loans. These types of programs ask for 12-24 months of personal and business bank statements. On those statements, there will be evidence of regular monthly income. The lender will average the listed income over the last 12 months to arrive at a qualifying amount.
This program typically caters to self-employed buyers with somewhat complicated income tax returns where multiple expenses, depreciation, and various income streams are many. Credit score requirements are also more stringent for this program. The bank statement program is becoming a very popular option in the jumbo category.
Qualified home buyers in Oregon have many different Jumbo financing options all the way up to 95%. This is especially helpful for first-time buyers purchasing in more costly locations like Portland. All of these programs do have credit and loan amount restrictions. Please read the complete guide on the Jumbo Loan Page. Contact us today to learn more and how to get approved.
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